In models of international trade based on differing factor endowments across countries, either trade of final goods and services or movements of factors of production can serve to equalize prices and earnings (Mundell, 1957). If country A has more labor relative to capital than country B, it can send labor to country B directly through immigration or indirectly through the export of labor-intensive goods. Restrict immigration, and trade should increase. Restrict trade, and immi- gration should increase. In the debate in the early 1990s over the North American Free Trade Agreement (NAFTA), treaty proponents argued that by creating more jobs and higher wages in Mexico, the treaty would reduce migration to the United States (International Organization for Migration, 2005a, pp. 194–5). If immigra- tion and trade are limited, capital flows will substitute for them and create pressures toward equalizing marginal productivity around the world.
But trade, people flows and capital flows were not substitutes in the U.S. economy during the 1980s and into the 2000s, when imports of goods and services, and financial capital, and skilled and unskilled immigrants increased. In the earlier period of mass immigration, from 1870 to 1940, trade and immigration do not appear to be substitutes either (Collins, O’Rourke and Williamson, 1997).